The Nigerian government has confirmed that they will be raising taxes to accommodate the 2019 budget. The reasoning was quite simple, saying that further development of the economy needs immediate funding so as to ensure a more prosperous future.
Fortunately for Nigeria, the investors pouring in from offshore countries will not be bothered by the new taxes too much. Nigeria is an essential part of integrating into the African market, therefore it can indeed afford to raise taxes like this. Unfortunately, however, these tax raises are going to bring in nothing but trouble further down the line.
The primary aspect that needs to be analyzed about raised taxes is the prestige of the country. Nigeria is considered to be one of the best emerging economies in the world and a gateway towards the African market. All of this was ensured by lower taxes and a sophisticated infrastructure to host offshore companies.
What the Nigerian government needs to understand is that other African countries are not just standing idly by. They are also in the process of developing their economies, which are starting to look more appealing for offshore investors. In fact, Nigeria is on the brink of losing the most important companies in its territory, the Forex brokers.
Lose more than they gain
Forex brokers in Nigeria are more than happy to provide trader benefits in the wake of lower taxes. Benefits like the XM no deposit bonus are dangling on a thin thread of taxes. A raise on them is going to collapse the whole system. But, why does this matter?
Well, first things first. The removal of the bonuses will make entrance in the Forex market a lot harder for Nigerian traders. This will inhibit not only the private equity of the population but also the operation procedures of the Forex brokers themselves. Nobody can expect a company to remain in an unprofitable situation as a favor. Soon enough, the taxes will weigh down on their profits to a point where they will have to move house.
This is especially dangerous as South Africa has been making significant changes to their financial policies to better accommodate these firms. Nigeria is not the heavenly gateway to Africa as it once was, therefore it needs to compete on even grounds with other counties.
A short-term plan
No matter what is said about the tax raises, the Nigerian government will indeed be able to raise enough Capital for the 2019 budget. However, the budget of 2020 will then be in question, then 2021, 2022 so on and so forth. The government cannot afford to raise taxes on every new budget as it will discourage companies to not only come to Nigeria but to even stay in it.
An alternative to raising taxes could have been a small raise on tariffs. In terms of raw material exportation, Nigeria is unrivaled. Tech companies cannot afford to lose the raw material trade and therefore would be contempt with the tariff rise. But this is now irrelevant as the tax rise has already been signed.